14.10.22, 16:04 ‘Your Results forMuiile choice questions” Multiple choice questions" Print this page Site Title: Fundamentals of Financial Management, ‘Summary of Results thirteenth edition Book Title: Fundamentals of Financial Management, thirteenth edition Book Author: Van Horne/Wachowicz Student Resources > Chapter 12 > Multiple choice questions Date/Time October 14, 2022 at 2:04 PM (UTC/GMT) Your Results for: 5% Correct of 20 Scored items: 1 Correct: 15% 3 hore: A 95%, More information about scoring Location on Si ‘Submitted: 2. @EEEEEERD in proper capital budgeting analysis we evaluate incremental cash flows. Your Answer: accounting Correct Answer: operating We want to examine after-tax incremental operating cash flows. 2, LISD The estimated benefits from a capital budgeting project are expected as cash flows rather than income flows because Your Answer: it is more difficult to calculate Income flows than cash flows Correct Answer: it is cash, not accounting income, that is central to the firm's capital budgeting de Forecasted income flows are calculated from the forecasted income statement and are not anymore difficult to calculate than cash flows, 3. LIED what is the depreciable basis? Your Answer: It is the cost of capital (both debt and equity) that can be depreciated and the cost spread over multiple years of the project. Correct Answer: It is the fully installed cost of an asset that taxing authorities allow to be written off for tax purposes. It is the fully installed cost of an asset that taxing authorities allow to be written off for tax purposes, 4, LIES in estimating “after-tax incremental operating cash flows" for a project, you should include all of the following except . Your Answer: changes in costs due to a general appreciation in those costs Correct Answer: costs that have previously been incurred that are unrecoverable This is related to inflation that we want to consider when evaluating a project. 5. QEEEEEEED ll of the following influence capital budgeting cash flows except hitpsflwps.pearsoned.co.uklema_uk_he_wachowice_fundfiaman_13/106/27150/6950642,cwiindex him! 1514.1022, 16:04 ‘Your Results for "Multiple choice questions” + choice of depreciation method for tax purposes sunk costs of the project ‘The use of an accelerated depreciation method over the straight-line method, for example, would increase the firm expenses in the early portion of the project life and result in an increase in cash flows. ‘The basic capital budgeting principles involved in determining relevant after-tax incremental operating cash flows require us to Your Answer: include sunk costs, but ignore opportunity costs Correct Answer: include opportunity costs, but ignore sunk costs We would ignore sunk costs, but include opportunity costs. Place the following items in the proper order of completion regarding the capital budgeting process. I. Perform a postaudit for completed projects; II. Generate project proposals; Ill. Estimate appropriate cash flows; IV, Select value-maximizing projects; V. Evaluate projects. Your Answer: II, V, Ill, IV, and 1. Correct Answer: II, III, V, IV, and I. ‘The basic capital budgeting principles involved in determining relevant after-tax incremental operating cash flows require us to Your Answer: include effects of inflation, but ignore project-driven changes in working capital net of spontaneous changes in current liabilities Correct Answer: include effects of inflation, and include project-driven changes in working capital net of spontaneous changes in current liabilities We would include effects of inflation, and also include project-driven changes in working capital net of spontaneous changes in current liabilities. Interest payments, principal payments, and cash dividends are the typical budgeting cash-flow analysis because they are flows. Your Answer: included in; financing Correct Answer: excluded from; financing These items are excluded because they are financing flows. 10, CTE Wat is an example of a capitalized expenditure? ‘Your Answer: Funds spent last year to renovate a building that could be used to house a new project that is currently being evaluated. Correct Answer: Installation costs necessary to use a machine that was just purchased. hitps:lwps.pearsoned.co.uklema_uk_he_wachowicz_fundinman_13/106/27150/6950643.cwiindex him!14.1022, 16:04 ‘Your Results for "Multiple choice questions” This is @ sunk cost, 11, QLEEEEEEED in regards to the sale or disposal of a depreciable asset, "recapture of depreciation” is Your Answer: any amount realized in excess of Its depreciated (tax) book value Correct Answer: any amount realized in excess of its depreciated (tax) book value, but less than its original depreciable basis It is any amount realized in excess of its depreciated (tax) book value, but less than its original depreciable basis. 12. QEEREEEERB For a corporation, what is the maximum federal tax that applies to any gains on the sale of a depreciable asset above its depreciable basis? ‘Your Answer: The corporation's marginal tax rate. Correct Answer: 35%, ‘The maximum rate is 35%, but the firm could pay the marginal rate if it is lower than 35%. 13, (QEREEEEEB under the MACRS system, and employing the half-year convention, a piece of machinery falling in the 10-year property class would generally be depreciated over Your Answer: fewer than 10 recovery years Correct Answer: 11 recovery years ‘The correct answer is 11 recovery years. (This is similar to asking -- How many member schools in the "Big Ten Conference"? And, as collegiate sports fans know, the answer is eleven.) 14, CELEB wich of the following is east likely to be part of the calculation of the terminal-year incremental net cash flow for an energy-related expansion project? ‘Your Answer: An initial working capital investment is now returned as an additional cash inflow. Correct Answer: Capitalized expenditures. This is @ potential project-termination change in working capital 15. QEEEEED Heinshmict wines.com is considering the purchase of a new project with a four-year life. ‘The depreciable basis is $100,000 and requires $20,000 of additional working capital. The project wil generate $87,000 of additional revenue with $50,000 of additional operating expenses for each year of the four-year project. For tax purposes, the equipment falls into the three-year property class using MACRS percentages. The company is subject to a marginal tax rate of 40%, The salvage value at the end of the fourth year is expected to be $5,000, The incremental net cash flow for the first year of the project is closest to which of the four suggested answers below? hitpsflwps.pearsoned.co.uklema_uk_he_wachowice_fundfiaman_13/106/27150/6950642,cwiindex him! 3514.1022, 16:04 Your Resulls fr "Mulple chaice questions Your Answer: $37,128 Correct Answer: $35,532 ($87,000 - $50,000 - $33,330) x (1-.40) + $33,330 depreciation charge is 33.33% of $100,000. :35,532. Note that the 16. HeinShmidt Wines.com is considering the purchase of a new project with a four-year life, ‘The depreciable basis is $100,000 and requires $20,000 of additional working capital. The project will generate $87,000 of additional revenue with $50,000 of additional operating expenses for each year of the four-year project. For tax purposes, the equipment falls into the three-year property class using MACRS percentages. The company is subject to 2 marginal tax rate of 40%. The salvage value at the end of the fourth year is expected to be $5,000. When we determine the project's terminal year incremental net cash flow, i.e., the flow for year 4, we apply the same step-by-step procedure for this period's cash flow as we do to those in all the interim periods. In addition, we give special recognition to a few cash flows that are connected with project termination. The adjustment (i.e., the sum of just those flows connected with project termination) that needs to be made to the incremental net cash flow for the fourth year of the project is closest to which of the four suggested answers below? Your Answer: $49,466 Correct Answer: $23,000 ($5,000 - $2,000 + $20,000) = $23,000. Note that the salvage value is considered as recapturing previous depreciation and will increase taxes by 40% of the salvage value 17. HeinShmidt Wines.com is considering the purchase of a new project with a four-year life. ‘The depreciable basis is $100,000 and requires $20,000 of additional working capital. The project will generate $87,000 of additional revenue with $50,000 of additional operating expenses for each year of the four-year project. For tax purposes, the equipment falls into the three-year property class using MACRS percentages. The company is subject to 2 marginal tax rate of 40%. The salvage value at the end of the fourth year is expected to be $5,000. The initial cash outflow for the project is closest to which of the four suggested answers below? Your Answer: $120,000 18. HeinShmidt Wines.com is considering the purchase of a new project with a four-year life, ‘The depreciable basis is $100,000 and requires $20,000 of additional working capital. The project will generate $87,000 of additional revenue with $50,000 of additional operating expenses for each year of the four-year project. For tax purposes, the equipment falls into the three-year property class using MACRS percentages. The company is subject to 2 marginal tax rate of 40%. The salvage value at the end of the fourth year is expected to be $5,000. The incremental net cash flow for the second year of the project is closest to which of the four suggested answers below? Your Answer: $9,720 Correct Answer: $39,980 ($87,000 - $50,000 - $44,450) x (1 - .40) + $44,450 = $39,980. Note that the depreciation charge is 44.45% of $100,000 and we assume that the "tax loss" shields other income in the firm, 19. Bruggerstein Auto.com is considering replacing a machine with a new machine that has a four-year life. The depreciable basis of the "new" machine is $100,000 ($80,000 cost plus hitps/lwps.pearsoned.co.uklema_uk_he_wachowice_fundfinman_13/106/27150/6950642,cwiindex himl 4614.1022, 16:04 Your Resulls fr "Mulple chaice questions $20,000 shipping and installation) and requires no additional working capital. The “old” machine can be salvaged for $20,000 (at its current {tax} book value) today. The "new' project will not generate additional revenues, but will decrease operating expenses by $35,000 for each year of the four-year project. For tax purposes, the equipment falls into the three-year property class using MACRS percentages. The "old" machine has four years of useful life remaining, only one year of tax depreciation of $5,000 remaining to be taken, and an estimated final salvage value, four years from now, of zero. The company is subject to a marginal tax rate of 40%. The salvage value at the end of the fourth year for the "new" project is expected to be $5,000. The incremental net cash flow for the first year of the project is closest to which of the four suggested answers below? Your Answer: $11,334 Correct Answer: $32,332 [ $35,000 - ($33,330 - $5,000) ] x [1~ .40] + $28,330 = $32,332. 20. QEEEEEB sruggerstein Auto.com is considering replacing @ machine with a new machine that has @ four-year life. The depreciable basis of the "new" machine is $100,000 ($80,000 cost plus $20,000 shipping and installation) and requires no additional working capital. The "old" machine can be salvaged for $20,000 (at its current {tax} book value) today. The "ney project will not generate adeitional revenues, but will decrease operating expenses by $35,000 for each year of the four-year project, For tax purposes, the equipment falls into the three-year property class Using MACRS percentages. The “old” machine has four years of useful life remaining, only one year of tax depreciation of $5,000 remaining to be taken, and an estimated final salvage value, four years from now, of zero. The company is subject to a marginal tax rate of 40%, The salvage value at the end of the fourth year for the "new" project is expected to be $5,000. The intial cash outrfow for the project is closest to Which of the four suggested answers below? Your Answer: $120,000 Correct Answer: $80,000 [ $80,000 + $20,000 - $20,000 + $0 J = $80,000. E-mail Your Results My name is (ist last): E-mail my resus to: E-mail address: Send a Ome Text v O instructor Text ¥ Om Text v O other Text v Hote (Enmairresuits Copyright © 1995 - 2020 Pearson Education. 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